It is almost impossible to know what qualifies as a security under the current regulatory regime of the US Security and Exchange Commission (SEC), US businessman Mark Cuban said, citing documents from the financial regulator’s website.
“Any element presented in this page is not part of the registration process. Which makes it impossible to know what is or is not a security in the crypto universe, with or without an army of securities lawyers.
SEC Framework for Digital Assets
The SEC’s 13-page document titled “Framework for ‘Investment Contract’ Analysis of Digital Assets” provides guidance for crypto firms to determine whether federal securities laws apply to their digital assets.
The SEC document outlines how to apply the Howey test to determine the status of investment contracts for digital assets, and how assets previously classified as securities may be reevaluated.
According to the SEC document, digital assets with a fully developed and operational distributed ledger network and that are used as payment methods or for their intended functionality are generally not considered investment contracts. However, it stipulates that a property may be an exception if:
the digital asset is offered or discounted to the buyer of the value of the goods or services; the digital asset is offered or sold to buyers in quantities exceeding fair use; and/or have limited or no restrictions on reselling those Digital Assets, in particular where the AP continues in its efforts to increase the value of the Digital Assets or facilitates a secondary market.
The commission added a caveat that “these factors are not intended to be exhaustive”.
Evaluating whether a digital asset is an investment contract or another type of security is not a determinative factor. The document also includes extensive footnoteing that explains its position.
SEC enforcement action
SEC Chairman Gary Gensler has described all digital assets except Bitcoin (BTC) as securities and highlighted the non-compliance of crypto companies. Under Gensler, the SEC Has Labeled More 60+ cryptocurrencies such as SOL, MATIC, ADA, BNB, and others as securities.
These enforcement actions have drawn strong reactions from many crypto stakeholders who dispute this broad classification and demand regulations for their industry. However, Gensler has said that existing securities laws adequately regulate the digital asset space.